Consumer Law & Policy Blog

Marketers of Simple Pure Supplements settle FTC court action

Marketers of green coffee bean extract weight-loss supplements, male enhancement products, and skin care products will forfeit assets totaling approximately $9.2 million, and have already turned over a Ferrari to settle the Federal Trade Commission’s court action brought against them in October 2014.

The proposed stipulated final order bans individual defendants Danelle Miller and Jason Miller and 42 corporations the couple controlled (the Health Formulas defendants) from advertising or selling weight-loss supplements and negative option sales plans, making unsupported health claims for other products, and debiting consumers’ bank accounts without their consent.

The FTC's press release is here.

Trademark Bullies Beware: Fifth Circuit Jettisons Bad Faith Requirement for Lanham Act Fees

by Paul Alan Levy

When I saw the Popehat Signal a few years ago, seeking counsel to help Todd DeShong fend off a lawsuit in federal court in Texas claiming that he defamed Clark Baker on his "HIV Innocence Group Truth blog, which criticizes Baker for profiting through charlatanism (Baker claims that HIV status is unrelated to AIDS), I was tempted to pass on the case.   After all, we generally don't take cases in which defamation is the main issue, and although we were interested in the contention that DeShong infringed the trademark on Baker's “HIV Innocence Project” by using the domain names "hivinnocenceprojecttruth.com” and "hivinnocencegroup.com," we had already won that issue in the Fifth Circuit back in 2004 we had already established in the Fifth Circuit, in defending a gripe site owner who was sued for a site about “Trendmaker Homes” that a non-commercial gripe site about a trademark holder may use the trademark in the site's domain name.  Consequently, the trademark issue was not novel in the jurisdiction.

But a ground-breaking issue was lurking in the case: the Fifth Circuit was one of several courts holding that, because the Lanham Act only provides for awards of attorney fees in “exceptional” trademark cases, a prevailing defendant cannot be awarded fees unless he not only shows that the plaintiff sued in bad faith, but proves bad faith by “clear and convincing evidence.”  That sort of standard makes it very hard for online speakers to find pro bono trademark counsel, and of course if non-commercial gripers have to pay tens of thousands of dollars in attorney fees just to maintain a web site that readily comes to the attention of Internet searchers looking for information about the companies about which they have complained, they have already lost.

The facts of Baker v. DeShong presented an excellent vehicle for urging the Fifth Circuit to change its approach to Lanham Act fees,

NYT profiles first "climate refugees" in the U.S.

A sign of things to come, reports the Times:

In January, the Department of Housing and Urban Development announced grants totaling $1 billion in 13 states to help communities adapt to climate change, by building stronger levees, dams and drainage systems.

One of those grants, $48 million for Isle de Jean Charles [in southern Louisiana], is something new: the first allocation of federal tax dollars to move an entire community struggling with the impacts of climate change. The divisions the effort has exposed and the logistical and moral dilemmas it has presented point up in microcosm the massive problems the world could face in the coming decades as it confronts a new category of displaced people who have become known as climate refugees.

Read the whole piece here.

Are Uber drivers employees or contractors?

That question was the subject of a recent class action lawsuit on behalf of the drivers in California and Massachusetts.

Now Uber will pay $100 million to settle the case and will allow the drivers to collect tips, but will keep workers classified as contractors under the deal. The classification issue seems likely to arise again.

Read coverage of the settlement here.

Chamber of Commerce Letter on Arbitration: Does it Make the Case for Class Actions?

by Jeff Sovern

Earlier today, the US Chamber of Commerce released a letter to CFPB Director Richard Cordray from David Hirschmann, President and CEO, Center for Capital Markets Competitiveness, urging the Director to address certain issues at Thursday's CFPB arbitration field hearing. Here's one of those issues, as stated in the letter:

[T]he public would benefit if your remarks were to include a discussion of how a consumers with a small claim based on unique circumstances would be able to vindicate those legal claims if companies, faced with the need to reserve millions of dollars for class action defense, were to cease subsidizing consumer arbitration programs. Under the current class action litigation rules, many small claims that involve issues that customers actually care about, such as alleged overcharges or the failure to credit a deposit on time, are unlikely to be classable because they are individualized disputes. For these claims, consumers will therefore have virtually no economically rational options for seeking redress: arbitration (in which most companies pay for consumers to bring claims against them, making it free to the consumer) will be gone; class action litigation will not be available; and rational consumers are not going to pay a $400 filing fee to pursue a $25 claim in court. Taking the opportunity to highlight how consumers will obtain redress for these types of claims would be very helpful in advancing the discussion.

I'm going to assume for this blog post that the industry would indeed no longer use arbitration if they couldn't combine it with class action waivers.  Would consumers really suffer if they couldn't bring arbitration claims for $25?  Well, the CFPB study found that consumers almost never bring arbitration claims when less than $1,000 is at issue, so the ability to assert small claims in arbitration isn't worth much.  But if consumers want to bring $25 claims, they could still do so in small claims courts (I would be curious to hear about small claims courts that charge a $400 filing fee for a $25 claim).  So even if arbitration goes away, consumers would lose something they don't use and don't need when it comes to small claims.

Perhaps the most notable part of the paragraph is its concession that consumers will not devote substantial resources to winning $25 claims. That is precisely why we need class actions to protect consumers against being taken advantage of in small amounts: so that companies will be deterred from bilking consumers in amounts too small to justify consumers investing resources in stopping them.

 

Galle Paper: Externalities, Internalities, and When to Use Nudges

Brian D. Galle of Georgetown has written The Problem of Intra-Personal Cost.  Here is the abstract:

“Externalities”, or harms to others, provide a standard justification for government intervention in the private market. There is less agreement over whether government is justified in correcting “internalities,” or harms to self the self is largely powerless to avoid. While some of the internality dispute is philosophical, some is practical. Critics suggest government lacks information to regulate internalities, and that any intervention would inefficiently distort a private market for self-help. In this Article, I show that these critiques of regulation overlook well-established tools of externality regulation, as well as a burgeoning literature on the measurement of internalities.

Having answered the “should” question, I move on to “how?” I examine the established tools of externality regulation, and consider to what extent the standard advice of the externality literature extends to internality regulation. I find some surprising results, such as that “carrots” may at times be an attractive alternative to “sticks,” and that even large taxes on internalities can produce a so-called “double dividend.” I also compare the traditional regulatory options to “nudges” and other forms of cognitively-informed government interventions. I show a set of cases in which nudges may be preferable to either taxes or command and control regulation.

Thus, my analysis also helps to resolve a second, related, debate over the propriety of nudges. The nudge debate has almost exclusively revolved around whether nudges avoid philosophical objections to paternalistic government regulation. I offer instead a new reason to employ nudges in some cases: they are more efficient.